It will be the second time Yahoo
YHOO, +0.85%
CEO Terry Semel will address Wall Street to discuss the Net media's future and his plans to wean Yahoo off its dependence on online advertising. Yahoo generates 82 percent of its revenue from advertising, by some estimates.

With this in mind, it will be noteworthy to see what percentage of revenue is non-advertising, which services could generate sustainable revenue streams and Yahoo's plans to support those services. Yahoo has been increasingly charging for its services, such as Yahoo Briefcase, which recently began charging $29.95 for an additional 50 MB of storage. See related story.

But some analysts believe Yahoo will always be an advertising-driven story. To that end, they'll focus more on Yahoo's strategy to tap Fortune 500 customers and the types of advertising that work online.

Tracking expectations

In the third quarter, Yahoo is expected to report pro forma earnings of 1 cent a share on revenue of $170.5 million. Yahoo, which benefited from a significant number of dot-com businesses last year, is expected to see third-quarter sales drop 48 percent from the same period a year ago.

JP Morgan Securities expects online advertising spending in the third quarter to fall 13 percent from the same period last year.

Many analysts expect Yahoo to meet its third-quarter numbers but lower the bar for the fourth quarter and next year. In the fourth quarter, earnings are expected to remain flat while revenue increases to $192 million. For the full year, Yahoo is expected to earn 5 cents a share on sales of $721.85 million.

More important, but far more challenging to assess, are next year's estimates. It doesn't appear that anyone is comfortable with expectations as many analysts expect to take them down.

Getting a handle on 2002

Currently, the consensus expectation for 2002 is that Yahoo more than doubles its earnings and increases revenue by 18 percent to $854 million.

Over at Thomas Weisel Partners, analyst Gordon Hodge expects online advertising to fall 9 percent this year and grow 7 percent in 2002.

Underlying these assumptions is an overall advertising environment that barely grows, and if it does, it would be due to a recovery in the latter half of next year.

Morgan Stanley projects overall U.S. advertising to grow by 0.2 percent next year, as estimated after Sept. 11. This compares to a 9 percent decline in advertising in 2001.

Morgan Stanley's projection assumes that U.S. advertising rebounds in the second half of next year. For the full year, JP Morgan Securities expects online advertising to fall to $7.5 billion, down 12 percent from $8.23 billion in 2000.

Yahoo's numbers will set the tone for the overall Net media sector for the current quarter and next year.

About the only other company in the Net sector that's also been hard hit is CNet. The company has not warned about its quarter. Its prior revenue target was between $70 million and $75 million. If it comes in at the lower range, it would mark a 37 percent decline from the same period a year ago. CNet reports its results on Oct. 23.

AOL Time Warner, which reports results on Oct. 17, is less exposed to advertising with 25 percent of revenue derived from advertising.

The price for uncertainty

Shares of Yahoo have been pummeled relative to others in the Net sector. It started the year at $30.06 and stands at $10, down about 67 percent. But its market cap is still a hefty $6 billion, giving it a price-to-earnings multiple of nearly 100.

CNet has
CNET, +4.60%
been punished even more, falling 78 percent to $3.46 from $16. At $6.99, DoubleClick
DCLKDCLK
shares have fallen 36 percent since trading at $11 at the start of the year.

Microsoft
MSFT, +1.57%
started the year at $43.38, but now stands at $54.56. Microsoft's MSN is one of the largest Internet service providers.

Morgan Stanley points out that Yahoo has allowed two extremely powerful competitors, Microsoft and AOL Time Warner, to gain significant, and by some measures, leading traction.

Yahoo's lack of aggressive marketing allowed Microsoft to get momentum. AOL Time Warner's acquisition of ICQ hurt Yahoo's potential in instant messaging, according to the report.

AOL Time Warner
AOL
at $34.08 at the start of the year, now stands at $32.

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